Thanks to some help from the Greece agreement reached Friday afternoon (February 20, 2015), the S&P 500 and Dow Jones Industrials Average ended last week at new record highs, while the NASDAQ has moved to within 50 points of the 5000 milestone. The market’s continued ascent has caused some to ask if the stock market reflects excessive optimism. One way to respond to that question is to look at valuations. On both trailing earnings and forward earnings estimates, we believe price-to-earnings (PE) ratios — both between 17 and 18 — are slightly rich, but not high enough for us to change our positive outlook for U.S. stocks for 2015. (For more on our 2015 stock market forecasts, please see our Outlook 2015: In Transit publication.) Another way to gauge optimism is to look at market surveys, such as the percentage of bulls from the American Association of Individual Investors (AAII), which at 72% is only slightly above the long-term average range of 60 – 65% and not excessively optimistic. Finally, earnings and economic surprises also indicate that investor expectations remain reasonable…..

Are Expectations Too High?